Pools Profiting by Mining Empty Blocks

Etherdig, an Ethereum mining pool, has developed a new way to make profit – by collecting mining fees without processing transactions. The concept, called “spy mining” is becoming a growing trend in the industry.

As a preliminary matter, it is important to understand that blockchain in a blockchain do not contain the same amount of information. For instance, Bitcoin blocks have a data limit of one megabyte and Bitcoin Cash blocks are limited to 32 megabytes. Blocks do not need to hold this much data to be verified and added to the chain.

Verification occurs when someone closes a block by working out the hash, which is a code of all the block’s data. The code is then necessary to form the next block. Mining pools broadcast to each new hash to all the miners that are signed up and they will start working on it.

It is impossible to create a hash without viewing the block’s data. It is possible, however, to use a created hash to develop a new block before a transaction is performed. If there are no transactions, there are no invalid transactions to nullify the block.

Miners receive hashes by registering to a mining pool. Upon doing so, they receive the hash and mine for themselves. As a result, you have spy mining.

Spy mining is related to selfish mining, where is when a miner finds a new block and tries to find a successor without informing the network. This gives the miner a head-start. The downside is that if someone else competes to work on the block and it is accepted first, the selfish miner just wasted their time. To mitigate the risk, selfish miners must ensure that they have enough resources.

This reasoning delves into why people are concerned of a 51 percent attack -if a mining pool controls the majority of a network’s computer power, it could monopolize mining of the blockchain by mining selfishly.

According to Decrypt Media, Etherdig produced 1,250 blocks in the last three months and processed no transactions. The platform’s block contains only the phrase “Interim Global Authority” and it compromised 3,750 ETH in mining rewards over that time period. As for Ethereum, blockchain processes just 5,800 blocks every day, making it 540,000.

Other pools are engaging in such behavior as well. For instance, Coinfi, a cryptocurrency market research company, determined that F2Pool, which is the third largest Ethereum mining pool that has 12.5 percent of the network hashrate, mined 100 empty blocks in 24 hours as of October 2, 2018.

Technically, blocks mined in this manner are not invalid and some argue that it is a legitimate method to maximize activity. Others, on the other hand, believe that empty blocks are harmful for the network because they make mining more difficult. This ultimately raises the risk of monopolistic mining pools. Miners also waste time on invalid blocks, reducing transaction capacity of the network.